Porcelain Interiors sells a variety of porcelain products including porcelain sinks. At December 31, the company had 200 sinks in inventory. The company's policy is to maintain a sink inventory equal to 5% of next month's sales. The company expects the following sales activity for the first quarter of the year:January 1,500 sinks

February 2,000 sinks

March 2,300 sinks

What is the projected production for February?

A) 2,115

B) 2,015

C) 1,985

D) 2,215

The projected production for February is B) 2015 sinks

Explanation:

The projected production for any month will include an opening inventory that is expected to be equal to 5% of that month's sale plus production for that month's remaining sales and production of units equal to 5% of net month's sales.

The expected opening inventory for February under this assumption is 2000*5% = 100 sinks.

Out of the sales of 2000 for February, 100 will be covered by opening inventory. The remaining sales are 2000 - 100 = 1900

Thus, the production requirement for February will include production requirement for February's sales = 2000 - 100 = 1900

plus the production requirement equal to 5% of march sales = 2300 * 5% = 115

Production in February = 1900 + 115 = 2015 sinks

The correct answer is B.

Explanation:

Giving the following information:

The company's policy is to maintain a sink inventory equal to 5% of next month's sales.

Sales:

February 2,000 sinks

March 2,300 sinks

To determine the number of sinks to be produced in February, we need to use the following formula:

Production = sales + desired ending inventory - beginning inventory

Production Budget February:

Sales = 2,000 sinks

Ending inventory = 2,300*0.05 = 115

Beginning inventory = 2,000*0.05 = (100)

Total = 2,015 sinks